Friday, August 15, 2008

The 13F filings from various funds are flying in now and I've been pretty busy sorting through them all. There are certain funds I like to track in depth (analyzing portfolio movements line by line), and others that I just check for major portfolio moves made in the last quarter, to keep tabs on them. Today, I want to touch on the filing by legendary investor George Soros. Let's take a quick glance to see what major moves he made in his portfolio.

George SorosIn Soros Fund Management's most recent 13F filing, Soros bought over an $800 million stake in Brazilian oil giant Petroleo Brasileiro (PBR). At the time, this massive purchase represented 22% of his entire portfolio and was his largest holding. And, interestingly enough, PBR is down nearly 30% since his purchase. Guess we'll have to wait til the next round of 13F's (next quarter) to see whether or not he still holds. Soros also made a big Potash (POT) purchase, increasing his position by over 2550% (from 65,500 shares to 1,747,707 shares). In another move, he also purchased over 9 million shares of Lehman Brothers (LEH), roughly a $180 million position at the time. He also made purchases in various commodity plays such as VALE (RIO) and Talisman Energy (TLM). All holdings were current as of June 20th, 2008. You can view Soros' full 13F as filed with the SEC here.

Stay tuned in the coming week, as I will have a steady daily flow of in-depth analysis of the following hedge fund 13F's:

In a complete 180 from my post yesterday about the anticipated rise in foreclosures, I want to highlight a real estate market that is actually bullish: farmland. We all knew the agriculture boom was affecting all aspects of the business. But, with charts from Mark J. Perry's blog, we can see just how big of a boom farmers are experiencing. I'll let the pictures do the talking.

Thursday, August 14, 2008

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here)

Now we're really starting to see the 13F filings trickle in. Next up, we have Tremblant Capital Group, managed by Bret Barakett. (If his last name sounds familiar, its because his brother, Timothy Barakett, manages fellow macro fund Atticus Capital, whom I also track). Taken from their site, Tremblant Capital Group's objective is "to achieve superior risk adjust returns for our investors through our focused and disciplined investment process." Tremblant is a $4.1 billion hedge fund based in New York and is run by Bret Barakett, who is a former portfolio manager at Moore Capital Management (the hedge fund run by the great Louis Bacon, whom I also track). So, as you can see, despite having a great mind of his own, Barakett has worked with some of the best in the macro game. And, that's why he's worth following.

The following are Tremblant Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here are the changes they made to their portfolio:

Added to:Centennial Communications Corp (CYCL). Increased their position by 301%Hologic (HOLX). Increased their position by 250%Gafisa (GFA). Increased their position by 120%Union Pacific (UNP). Increased their position by 100%American Pub Ed Inc (APEI). Increased their position by 76%Time Warner (TWX). Increased their position by 74%Focus Media Holdings (FMCN). Increased their position by 56.6%Nuance Communications (NUAN). Increased their position by 54%Visa (V). Increased their position by 40%Green Mountain Coffee Roasters (GMCR). Increased their position by 40%Anadigics (ANAD). Increased their position by 38%Mckesson Corp (MCK). Increased their position by 24%Cogent Communications (CCOI). Increased their position by 15%Hughes Communications (HUGH). Increased their position by 14%NYSE Euronext (NYX). Increased their position by 10%Melco Pbl Entertainment (MPEL). Increased their position by 7%Walmart (WMT). Increased their position by 5%Heathextras (HLEX). Increased their position by 3%

Reduced Positions:LCA Vision (LCAV). Reduced their position by 95%Research in Motion (RIMM). Reduced their position by 35%Apple (AAPL). Reduced their position by 29%ThermoFisher Scientific (TMO). Reduced their position by 28%Pharmaceutical Prod Dev (PPDI). Reduced their position by 22%Inverness Med (IMA). Reduced their position by 21%CVS Caremark (CVS). Reduced their position by 18%RedHat (RHT). Reduced their position by 15%Monster Worldwide (MNST). Reduced their position by 11%Suntech Power (STP). Reduced their position by 11%Corning (GLW). Reduced their position by 8%Qualcomm (QCOM). Reduced their position by 6%Ntelos Holdings (NTLS). Reduced their position by 1.7%Commscope (CTV). Reduced their position by 1.5%Paetec Holding (PAET). Reduced their position by 1%Pharmanet Dev Group (PDGI). Reduced their position by 0.71%

Breakdown: Tremblant's portfolio is big on tech, and rightly so. From March until June (the period of time that passed between the filing of past & present 13F's), tech was on a rampage. So, for them to be taking some profits in those names seems natural. They cut back their AAPL and RIMM by about a third of a position, which classifies as healthy profit taking from a big move in my book. I wouldn't be surprised to see them adding back at cheaper prices what they sold. Noticeably absent from their tech portfolio is GOOG. They have BIDU instead, and a pretty large position at that (its their 10th largest holding). Hedge fund favorites AAPL, RIMM, & QCOM also make up a large part of Tremblant's portfolio overall. All 3 are top 10 portfolio holdings. What else is new?

Speaking of hedge fund favorites, we notice that MA and V make an appearance, with MA just being added this past quarter. They already had a large V stake and appear to be assembling a MA position to go along with it. Many funds seem to prefer MA to V, but not Tremblant. We'll see next quarter if their MA position catches up in size to the massive stake they have in Visa (their 2nd largest holding).

Interesting to see the Brothers Barakett (Bret at Tremblant and Timothy at Atticus) both in the house of pain with NYX. Tremblant added more this quarter and look to be averaging down again and again. I can't blame them though. NYX is a solid company that 'appears' cheap on valuation. But, in this market, nobody seems to care about that. The exchanges should be perfect plays to bet on a market with increased volatility. But, apparently they are not. Instead, they are downward spiraling deathtraps. One other commonality between the Brothers Barakett portfolios is their affection for the rails. UNP BNI and CSX all appear in Tremblants portfolio. UNP is their largest rail holding currently, as they doubled down on their stake this past quarter.

Overall, technology, communications & media, the rails, and medical plays seem to be the name of the game for Tremblant this time around.

Lastly, just wanted to note that they have abandoned America Movil (AMX). This name has been in a steady downtrend in recent months, and it looks like they gave up on the name. Last quarter and in the past in general, AMX was easily one of the most common holdings among the hedge funds I track. As the 13F's continue to come out, we'll have to see if others joined Tremblant in dumping their shares.

Tremblant Capitals' most interesting move(s)? Beefing up their general media & communications technology holdings. They added a variety of names such as CYCL, CCOI, FMCN, TWX, NUAN,VMED.You can view Tremblant Capital's 13F as filed with the SEC here.

Taken from Credit Suisse, we see just how long and winding the path of destruction really is. Adjustable Rate Mortgage Resets will be an ongoing source of pain for many Americans. Americans who signed up for ARM mortgages did so because of the low teaser interest rates they were receiving. And, eventually, these teaser rates revert back to much higher rates. Many Americans will not be able to afford their new mortgage rates sparking yet another round of foreclosures. This is not 'new' news by any means. But, it seems to me that some people have yet to truly grasp just how far from 'safety' we are. Keep in mind that even after these resets take place, it could take many months before the homeowners finally hit rock bottom and have to foreclose. ARM's will continue to reset in mass up until December 2011. Then factor in the many months afterwards that Americans will be defaulting on their new, higher mortgages. Sometimes I feel like I'm a "doom & gloom-er." But, then I take a step back and realize I'm just keeping it real(istic). Fun times ahead here in the United States of Foreclosure.

"The commodity half of oil tycoon T. Boone Pickens's BP Capital hedge fund lost 35 percent of its value in July, the New York Post said, citing sources."

Ouch. Sounds as if old T. Boone needs to spend a little bit less time campaigning for his PickensPlan, and a little more time running his hedge fund. (Okay, maybe that's a little harsh considering he is poised to make big $$$ should his 'Plan' materialize in any way shape or form). Nevertheless, it will be interesting to see what his 13F looks like when he files that here in the next few days. It sounds as if he was pretty stubborn with some natural gas and oil plays though, that's for sure. Considering that commodities took it on the chin in July, and given the fact that his fund is energy-centric, the losses make sense. But, you'd think that someone with as much experience in the energy markets as Boone would be a bit quicker to react/adapt to what was happening.

Wednesday, August 13, 2008

This chart is about as simplistic as it gets. Hat tip to Barry Ritholtz over at The Big Picture for posting up what he aptly calls "A Chart of the Decade." Many of the energy themes I've discussed here before stem from one very basic chart.

Courtesy of the Federal Reserve Board we see an interesting chart depicting the decline of the US Dollar as well as its impact on the price of crude oil. Seeing the price of crude oil charted in other currencies really puts into perspective just how much the weak dollar has helped commodities. Sure, much of the commodity story has been fundamentally driven. But, the dollar has undoubtedly played a role in the rise of commodities.

The question I pose now is: Where is the Dollar heading longer term? Shorting the US Dollar became a crowded trade very quickly. And, with the right set of catalysts (as we've seen recently), the Dollar can indeed rally. But, is this rally really a turn-around, or rather just a counter-trend rally. The fed seems poised to raise rates in their coming meetings. The ECB seems concerned with growth rather than inflation currently. Both point to a bullish future for the Dollar. But, I still have to believe that this is merely a counter-trend rally within a longer term downtrend.

Much damage has been done to the dollar over the years. Just look at the chart, it speaks volumes. From 2002 until present, the dollar has really done nothing but decline in value. Sure, there are some rallies here and there. But, they are very short lived. It rallies up to the downward sloping trendline only to decline yet again. The only time where the dollar really held its own was during the years 2005 and 2006. During these years the dollar traded sideways for the most part. And, I think we are setting up for the Dollar to trade sideways for a longer period of time. While we cannot predict the future, we do know that the Fed can only do so much with their rate increases. What happens after they are done with their cycle? We'll obviously have to address this as the currency market continues to unfold. While I think the dollar can (and probably will) see a substantial rally in the coming months, I still believe it is just a reversion to the mean within the context of the broader picture. After the rally secedes, we could very well see a period of stagnation.

Tuesday, August 12, 2008

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's here)

Well, its time for us to get a little peak at what the big boys have been up to over the past few months. While most 13f's won't come out until later in the week, Jeffrey Gendell's 13F is already out so let's get right to it. If you're unfamiliar with Gendell and his Tontine Partners, then here's what you need to know. Founded 11 years ago, Tontine is a $10 billion fund ran by Jeffrey Gendell. He specializes in macro investing and takes very large, concentrated positions in companies he feels will benefit from those macro themes. Additionally, he will take on an activist role when necessary, to ensure shareholder returns. The fund has posted returns in excess of 100% in both 2003 and 2005.

So, let's get right down to it... what was Jeffrey Gendell up to this past quarter? The following is Tontine Partners' current holdings as of June 30th 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

Added to:Chemtura Corp (CEM) increased position by 313%Satcon Technology (SATC) increased position by 165%JP MorganChase (JPM) increased position by 153%LSB Industries (LXU) increased position by 113%Goldman Sachs (GS) increased position by 109%Emcor Group (EME) increased position by 70%US Concrete (RMIX) increased position by 64%Patrick Industries (PATK) increased position by 49%Accuride Corp (ACW) increased position by 46%Tierone Corp (TONE) increased position by 45%Mastec (MTZ) increased position by 45%Sterling Financial (STSA) increased position by 39%Goodyear Tire (GT) increased position by 28%Sun Micro (JAVA) increased position by 22%Foster LB Co (FSTR) increased position by 22%Maxwell Technologies (MXWL) increased position by 16%KB Home (KBH) increased position by 15%Beazer Homes (BZH) increased position by 13%Gentek (GETI) increased position by 11%Pulte Homes (PHM) increased position by 9%Elmira Savings Bank (ESBK) increased position by 9%MI Homes (MHO) increased position by 8%Merrill Lynch 9MER) increased position by 7%Brush Engineered Materials (BW) increased position by 6%Twin Disc (TWIN) increased position by 6%Synalloy (SYNL) increased position by 5%Perini (PCR) increased position by 5%Sun Bancorp (SNBC) increased position by 5%Toll Bros (TOL) increased position by 3%Polyone (POL) increased position by 2%PAB Bankshares (PABK) increased position by 2%US Airways Group (LCC) increased position by 1%Tenneco (TEN) increased position by 0.66%AZZ Inc (AZZ) increased position by 0.60%QCR Holdings (QCRH) increased position by 0.11%Preformed Line Products (PLPC) increased position by 0.03%

Breakdown: Tontine Partners' 13F can be summed up in 3 words: Regional Bank Clusterf*ck. He has a ton of them, but they aren't very big positions relative to his whole portfolio. For the most part though, Gendell was selling all his financials, including the regionals. The only major financial plays he has left anyways are smaller positions. And, his only positions of major size in that sector are through calls. So, I'd have to think that he saved himself some serious money by exiting/reducing a number of those regional positions, as they could have really put him in the house of pain. It should be noted that he made large additions to the big banks such as JPM and GS.

The next major trend I noticed in his portfolio was that he is highly levered up with steel holdings. While he did do some position size reducing across a few of his steel names (X, AKS), one still has to wonder how he's faring right now given the recent selloff in steel? Whether he has sold anymore substantial positions is the real question. Because, if he hasn't, the recent drop in steel stocks has undoubtedly affected his portfolio in a negative way. Although he did reduce his position sizes.... he still has MASSIVE stakes in the steel names. After all, the top 2 holdings of his fund (and 3 out of the top 10 holdings) as of June 30th were steel stocks. So, he definitely profited handsomely from these steel names by nearly top-ticking the market, selling huge chunks before the peak in July. But, he's since given back much of these gains, assumming he still holds the steel names. This is actually a very unique situation where his 13F doesn't really help us. These holdings were as of June 30th and that was conveniently around the same time steel stocks started topping out. So, the real action in the steel names has been occuring outside of the time period the 13F covers (ie: the past month and a half). And, he is either taking a lot of pain from these massive steel holdings, or he has been partly responsible for the massive selloff in the steel names. We can only guess at this point. We'll have to wait until the next round of filings to find out what he's been up to, unfortunately. The timing overlap on this situation really prevents us from gaining much insight.

But, from this past quarter, we can take away the fact that Gendell definitely had strong conviction in steel and infrastructure names. After all, practically all of his top 10 holdings are concentrated in those 2 sectors. One other top 10 holding I wanted to touch on though is his #4 holding, Quanta Services (PWR). This chart has been breaking out and I have seen this name popping up more and more around financial sites. Plus, it fits right into his whole infrastructure theme. So, it doesn't surprise me at all to see that Gendell has already been in this name for quite some time. After all, he's a pretty smart guy. (Keep in mind: although some of these top holdings are indeed large stakes, some/many have experienced price appreciation, boosting their % share of the portfolio even more.)

Tontine Partners' most interesting move(s)? Whatever he has done in the past month and a half that we can't see. No joke. Since such a massive allocation of his portfolio was dedicated to steel stocks, his fund's performance has no doubt been affected by whatever decisions he has made recently. If he has been one of the many selling steel names, then he is in great shape. If not, then he's screwed. Us plebeians will have to wait until the next round of 13F's to find out Gendell's steel fate.

(Just FYI: This post marks the first of a series I will be doing in the coming weeks that details what the "smart money" has been up to lately.)

Four times a year, hedge funds & asset managers with > $100 million AUM (assets under management) are required to report to the SEC their holdings from the previous quarter. I check these 13F filings quarterly just to get a sense as to where these funds are putting their money sector wise. If you just sit down and do some simple number crunching between last quarter's 13F and this quarter's 13F, you can see exactly where these funds have been moving their money.

Please note, these 13F's should be treated as a lagging indicator simply because the 13F's that were just released August 10-15th 2008 show the funds' holdings as of June 30th 2008. So, in the past month and a half, they could have completely changed their portfolio. But, at the same time, its easy to see which sectors they are flocking to.

I like to specifically follow value based hedge funds in the hope that they won't experience ridiculously high turnover and thus allowing me to track their movements. Specifically, I follow the Tiger Cubs (otherwise known as the proteges of former Tiger Management legend Julian Robertson). Many of these former proteges/right hand men have started their own funds and here are the ones I've been following:

So, I follow a core of value funds in depth and then I also follow a core of global macro funds in depth. Over the next week, I will be going into detail as to what those specific funds were up to this past quarter. Additionally, I like to follow other "whales" and funds that are not necessarily value based, but are still top performers on Wall Street. I won't be going into detail on some of these names, but I will provide some very useful links that give a broad overview of what some of these whales have been buying/selling. Because, after all, you've got to at least keep tabs on what these guys are doing:

So, over the coming week I'll touch on some important position moves some of these funds/whales have made (new positions, removed positions, etc). And, specifically, I'll be looking in depth at some of my favorite funds on a quarter by quarter comparison.

Get ready for a barrage of information as the various 13G, 13D, and most importantly 13F's are filed with the SEC by the various hedge funds in the coming days. Right now, we're just getting a little tease from Blue Ridge Capital (John Griffin) and Lone Pine Capital (Stephen Mandel Jr.), before they release their 13F's later in the week.

- Blue Ridge Capital, in a 13G filed yesterday, disclosed they now have a 6.7% stake in Echostar (SATS). As I first wrote about here, Blue Ridge started a new position in SATS in their previous 13F with 1,906,000 shares. And, this past quarter, they were definitely busy adding to that position, as they report they now hold 2,830,000 shares of SATS, which signals a 48.4% increase in the size of their position since last quarter.

- Lone Pine Capital, in a 13G filed yesterday, disclosed they now have a 7.8% stake in Hansen Natural (HANS). In their previous 13F filing, Lone Pine did NOT show a position in HANS. So, this is a brand new position that they've literally just assembled in the previous quarter.

Monday, August 11, 2008

I've said all along that you need to be thinking ahead and preparing your portfolio for various potential economic and market scenarios. And, I've roughly broken down these scenarios into two environments: inflationary & deflationary. So, after much reading, pondering, and hypothesizing, I've come up with my broad gameplan for each scenario.

Inflationary EnvironmentIn an inflationary scenario, the following positions should be poised to benefit:

- Long Gold: As a speculator's instrument, many argue that gold is an inflation hedge. Long also other precious metals and commodities in general.

- Long Oil: In a truly inflationary environment, oil is supply inelastic; any increase or decrease in price would not result in a corresponding increase or decrease in supply.

- Short Leverage: A common theme regardless of environment, really. Leveraged companies, companies who provide leverage, companies with leveraged consumers.... short them all. A deleveraging environment is ahead of us.

- Long Technology: Regardless of environment, technology will evolve and there will be demand for such advancements.

- Short Fixed Income: Weak domestic currency/monetary system means it will underperform and thus should be shorted.

- Long Emerging Markets: A weak domestic currency/monetary system implies higher returns can be found abroad in countries experiencing vast growth.

- Avoid staying in cash: Inflation means your currency is worth less every day. Fight it by not staying in it if at all possible.

Deflationary EnvironmentMany people are becoming increasingly concerned that deflation is in our future. And, this concern is duly warranted considering that deflation typically rears its ugly head after periods of prolonged globalization and global growth. Such growth leads to increased investment, a massive increase in production, and thus excess capacity all around the world. Such excess capacity then brings forth lower prices. In deflation, companies suffer while the consumer is the real winner. In a deflationary scenario, the following positions should be poised to benefit:

- Short Equities: In deflation, traditional investments should suffer simply because the underlying companies will see lower margins and losses. And, more often than not, certain companies will become insolvent.

- Short Housing: Rent rather than own. As prices collapse, stand back and let the landlords watch the values of their properties plummet.

- Long Fixed Income: Mainly sought after as a safe haven (much like gold in an inflationary environment). While by no means a 'top pick' for investing during deflation, it is an option for those who do not have access to short selling (the preferred position). Although fixed income yields should decline due to fed easing (to combat deflation), the underlying should theoretically depreciate much less than equities (which you do not want to be long). Seek better quality bonds.

- Short Leverage: Regardless of environment, deleveraging should be a big theme playing out in the future. Short any companies that have anything to do with leverage. In deflation, leverage begins to unwind and as such currency plays can be found. A massive leveraged carry trade in the Yen has taken place over the years and as such would be unwound in deflation, thus benefiting the Yen.

- Short Emerging Markets: The global boom that once fueled these nations quickly turns sour for them. Global excess means prices come down and companies suffer.

- Long Technology: Regardless of environment, technology will advance and will be in demand.

- Avoid debt and raise cash

- Long Gold: In extreme conditions (in any direction), gold can make sense. In deflation, it can make sense when acting as currency.

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Whether in an inflationary or deflationary environment, portfolios can be poised to outperform. While the theme of deleveraging seems all but inevitable, the exact scenario(s) that will unfold are hard to predict. But, the possible outcomes stand roughly divided by the two scenarios outlined above. And, both environments offer unique investment opportunities poised to outperform. (See here for an additional set of stipulations regarding each type of environment).

"When most people share the same sentiment, that is usually when trends change."

The rally we've slowly been mounting has been putting in higher lows as it approaches overhead resistance at the moving averages. I personally still feel this is just a minor rally within a broader bear market. For a trade, it makes sense to be long here if the counter-trend rally can breakout above the moving averages. But, then again, the overhead resistance we're about to run into could very well be the catalyst to send us right back down. I'll wait for a confirmation in either direction before I initiate new shorts or longs. This market is trading very tightly on technicals, that's for sure.

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